A Tale of Two Circuits: D.C. Circuit, Fourth Circuit Split on ACA Subsidies

It was the best of times for ACA subsidies, it was the worst of times for ACA subsidies. On Tuesday, the Court of Appeals for the D.C. Circuit (“D.C. Circuit”) and the Court of Appeals for the Fourth Circuit (“Fourth Circuit”) came to different conclusions as to the legality of Affordable Care Act (“ACA”) subsidies in Halbig v. Burwell and King v. Burwell, respectively. In both cases, the challengers argued that Section 36B of the ACA, which creates subsidies for purchasing health insurance, only applies to health insurance plans purchased through a state-established health insurance exchange, and not a federally-created health insurance exchange. The Internal Revenue Service (“IRS”) has interpreted Section 36B to allow those purchasing health insurance through both federal and state exchanges to qualify for subsidies in the form of tax credits.

In striking down the subsidies for plans purchased in federally-created exchanges, two of three judges for the D.C. Circuit panel accepted the challengers’ argument that the language of the statute providing for subsidies, which states that subsidies are available to those purchasing insurance through exchanges “established by the State”, was unambiguous. In his opinion for the panel, D.C. Circuit Judge Thomas Griffith wrote that the Court was entering its opinion with “reluctance” given the impact of the ruling, but that “legislative supremacy” required the D.C. Circuit to interpret Section 36B to only allow subsidies for health insurance plans purchased in state-established exchanges.

In upholding the subsidies for plans purchased in federally-created exchanges, the Fourth Circuit panel applied the Chevron analysis (a standard that gives deference to agency interpretations of statutes under certain circumstances) to decide that the language of the statute was ambiguous and that the IRS interpretation was a permissible one as it advanced the broad goals of the ACA, namely, ensuring access to health insurance. Fourth Circuit Judge Roger Gregory, writing for the unanimous panel, stated that it is “clear that widely available tax credits are essential to fulfilling the [ACA’s] primary goals and that Congress was aware of their importance when drafting the bill”, and thus held that subsidies are available for health insurance plans purchased in federally-created exchanges.

If the circuit split is resolved in favor of the D.C. Circuit’s interpretation, it would have wide-reaching implications for those currently receiving subsidies and also for the viability of the ACA itself. According to a Department of Health and Human Services (“HHS”) report released in mid-June, 87% of federal exchange enrollees have selected plans with tax credits, resulting in an average 76% reduction in the cost of health insurance premiums. Currently, 36 states participate in federally-created health care exchanges, while only 14 states have created their own health insurance exchanges.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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